Their apprehension was reinforced last Thursday when Talanx, German’s third-largest insurance group and majority owner of Hanover Re, pulled its $1bn float after only a week of price marketing.

Talanx, advised by Rothschild, with Citigroup, Deutsche Bank and JP Morgan in charge of the IPO, said the company’s valuation deviated significantly from the estimated minimum fair value.

Days before the listing was pulled, one lead banker on the deal said: “The deal is going well and there has been plenty of interest.”

The listing was expected to be the largest European issue of the autumn and a bellwether of market appetite. One banker not involved in the flotation said before its withdrawal: “If the Talanx deal trades well, there is no doubt that this will encourage other IPOs to come into the market.”

IPOs have been arriving at a faster rate than at any other time this year. According to data from Dealogic, 17 European IPOs are either formally expected or filed, of which six have been announced since the beginning of last month.

Giant European deals still on the radar last week included the £3bn IPO of UK insurer Direct Line, being sold by Royal Bank of Scotland, through Goldman Sachs, Morgan Stanley and UBS, which started pre-marketing last week.

Russian telecoms firm MegaFon, owned by billionaire Alisher Usmanov, is set to list §in London for up to $4bn, with six banks on the deal.

However, the case of convincing corporates to come to market, even when they look relatively upbeat, remains difficult. Adam Welham, head of European equities syndicate at Barclays, said: “Any corporate CEO would have to be very confident about the trajectory of their business and feel positive on the future market outlook to want to execute a large transformative ECM trade right now.”

Luis Vaz-Pinto, global head of equity capital markets at Societe Generale, said: “There are so few IPOs out there because corporates are not exactly enthusiastic about the markets and valuations.

A good signal of that is what is happening with the Russian transactions. The Street has a big pipeline but corporates are undecided.”

This hesitation comes at a time when Europe finally seems to be righting the ship. Last Wednesday, Germany’s Federal Constitutional Court in Karlsruhe decided to reject a lawsuit from a group hoping to prevent the European Union’s bailout fund being ratified by the German parliament.

They had already been rising, with the Euro Stoxx 50 up around 22% since June, and Euro Stoxx 50 Volatility index down 15% since a quarterly peak on September 4.

Welham said: “There was clearly a sense of relief that things are heading in the right direction. When you talk to traders, the danger for most investors is that they will miss out on a sustained rally if it comes, and they can’t afford to do that.”

The rest of the IPO world is already one step ahead of Europe. Last week saw the $8.5bn initial public offering of Japan Airlines and the US government decided to offer $20.7bn worth of stock in bailed-out insurer American International Group, far larger than the industry had expected.

Bankers say European IPO roadshows have been set in motion but have yet to reach the market.
Darrell Uden, co-head of equity capital markets for Emea at UBS, said: “Apart from blocks [block trades], we are still talking about an IPO market that is formally untested post-summer.”

He said: “Institutions on the buyside want to be involved in dialogue – they have got capital to put to work, and we are seeing much higher levels of co-operation and constructive dialogue around key situations but they will clearly remain selective.”

The industry is, however, mixed on the strengths of the banks’ pipelines. No bank wished to comment on the exact size of their pipeline. But one banker, who declined to be named, said: “I know of banks that have no pipeline whatsoever.”

Pipelines feel the strain

There are also rumours that some banks are struggling to manage their pipelines, after cutting back on ECM staff this year.

One equities banker said that some major European banks now no longer have a single banker in Russia, the Commonwealth of Independent States or even France, and are leaving IPOs halfway through the deal process.

One banker said: “We were working on a deal over the summer, and then three guys from a rival bulge bracket disappeared. The entire team, gone.”

A number of banks were adamant that their pipelines remain full of business and September saw a flurry of equity-linked deals, including a £400m issue from British Land and a €377m issue from BNP Paribas subsidiary Pargesa. The first week of September alone saw $2.2bn worth of equity-linked issues from Emea corporates.

However, even those winning deals need to be careful trying to push business through the equity window. On September 7, Bank of America Merrill Lynch ended up nursing a multimillion-euro hit on an unsuccessful block trade of shares in Deutsche Post, according to sources familiar with the matter.

One head of equity capital markets at a bulge-bracket bank, talking hours after completing a successful multimillion equity-linked deal, said: “I wouldn’t say the picture looks near rosy – but at least it doesn’t look worse than it did. It is all based on what happens in Europe.”

Another banker said: “Blocks have got done but a lot of them have not performed well. But it’s amazing that there are still people out there confident to get involved in these things.”

Alain Dib, head of European equity capital markets at BNP Paribas, said: “At least we have some sort of window and there is no reason that, over the next month, markets should not be supportive. After that, you never know what is going to happen.”